Market Report: O2 rings up gains on talk of Dutch predator

Rumours of a bid for O2 just won't go away, and yesterday they focused on suggestions that Deutsche Telekom might be tempted to make a move on the UK mobile phone operator.

The speculation left O2trading at 131.75p at one point during the session, but as the day wore on investors lost faith in the talk and the stock closed 1.25p higher at 129p.

The Deutsche Telekom story is the most recent to surround the mobile phone group. Earlier this month, dealing rooms were alight with talk that O2 is vulnerable to a private equity bid thanks to its impressive cash flows. Given recent moves on major telecoms players in Italy and Spain by financial houses, such a scenario is a possibility, according to analysts.

Credit Suisse First Boston is sceptical that Deutsche Telekom would want to increase its exposure to the UK. The German group, which runs the T-Mobile network, is more likely to focus its resources on developing its 3G services in the US, says CSFB. Elsewhere in the sector, Virgin Mobile dropped 3p to 246p while Vodafone retreated 1.25p to 134.75p.

Meanwhile, experienced market operators were again heard to be buying into Regus, up 0.5p to 93p. They reckon the office space group could soon receive a 130p-a-share offer from a US private equity house, possibly Blackstone.

It takes a brave trader to dabble in Regus. The group's shares have been particularly volatile over the past three months after Robert Bonnier, the stock-market punter, was forced to close his bull position in the stock after sustaining heavy losses elsewhere.

The oil sector was a major talking point after the price of crude touched $60 a barrel. The best gains were achieved by second-line oil explorers, especially after the bid for Unocal in the US from CNOOC, China's third-largest oil company.

Although the move might not be successful, it confirms the appetite of Chinese companies for reserves, and analysts believe the forthcoming months we see further attempts by China to secure oil assets.

This is likely to prompt India, another fast-growing economy in need of oil for its industrialisation, to go the same way. Such a development would make the likes of Dana Petroleum, 21p better to 659p, Premier Oil, up 18.5p to 689p, Burren Energy, 11.5p stronger to 670.5p, and Tullow Oil, 2p firmer to 183.5p, hot property indeed.

However, the strong crude price is not good news for everyone, especially those businesses whose cost base is dominated by the commodity. Hence, ICI fell 10.75p to 255.25p, British Airways dived 3.25p to 275.75p, easyJet lost 5.75p to 239p and Ryanair gave up €0.10 to €6.46. In fact, worries about the oil price weighed heavy on the blue-chip index as a whole. The FTSE 100 closed 35 points lower at 5,079.

Corus lost 0.75p to 40.74p after yet another profits warning from a steel industry peer. The latest alert came from Steel Technologies of the US, which was forced to admit that falling prices would negatively impact its third-quarter results. Similarly, London listed semiconductor players were hit by poor results from their US peer Micron Technology. ARM Holdings gave up 3.25p to 118.25p, CSR retreated 3.75p to 394.25p and Wolfson Microelectronics lost 2.5p to 168p.

Lower down the pecking order, Future, the specialist publisher, dropped 0.25p to 79.25p after its chief executive, Greg Ingham, sold 257,000 shares at 78p. Avanti Screen Media gained 15p to 230p after unveiling its biggest contract win to date. The deal, worth £3m, will see Avanti roll out its advertising screens across shopping centres owned by Mall Limited Partnership.

UBS downgraded its rating on Chloride, steady at 63.5p, to "hold" from "buy" after a 14 per cent rally by the shares over the past month. The Swiss broker warned that the recent fall in the value of the euro is likely to negatively impact the company as it derives a significant proportion of its profits from the Continent.

Crosby Capital, the Asia-focused investment company, rose 2.5p to 55p on news it had secured management control of IB Daiwa, a Japanese conglomerate. This year, Crosby built up a substantial stake in the Tokyo-listed company at ¥30 a share. Since then the group's stock has soared to ¥207, leaving the investment company sitting on a very impressive profit. Crosby is likely to try to realise value from the company by breaking it up.

Finally, James Beattie gave up 2.5p to 146p despite talk that the takeover offer from House of Fraser could value the company at up to 168p a share. Gossips reckon the bid for the department stores group will most probably be a cash-only affair.